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Chair’s Statement - Citi (UK) Pension Plan
1 Introduction
This statement has been prepared by the Trustee of the Plan (the “Trustee”) in accordance with statutory requirements. It describes how the Trustee has met the statutory governance standards for the Plan’s Defined Contribution (DC) or Money Purchase benefits in relation to:
• The investment options in which members can invest (this means the default arrangements and other funds members can select)
• The requirements for processing financial transactions; • An assessment of charges and transaction costs; • An illustration of the cumulative effect of these costs and charges • The requirement for trustee knowledge and understanding
between 1 April 2018 and 31 March 2019 (“the Plan Year”).
2 Default arrangements
The following arrangements are the Plan’s “default arrangements” for the purposes of legislation.
The Plan’s main default arrangement
For members who do not make an active investment choice the default arrangement is the Drawdown Lifestyle arrangement, which is managed as a “lifestyle” strategy (i.e. it automatically combines investments in proportions that vary according to the time to retirement – known as Target Access Age or “TAA”). Members further than 10 years from their TAA are fully invested in the Growth Fund, which comprises global equities and diversified growth funds. At 10 years to TAA members begin to de-risk into the Pre-Retirement Fund, which comprises global equities, diversified growth funds, index-linked gilts and corporate bonds. At TAA members are fully invested in the Pre-Retirement Fund.
The Plan’s other default arrangement
The legislative definition of a default arrangement means that other funds could potentially be captured under this definition, for example as a result of members having been transferred into funds without their consent. As a result, the Trustee has identified one other arrangement which could be considered to be an additional default arrangement, and consequently is being treated as a default arrangement for the time being:
• The Cash Lifestyle. Members further than 10 years from their TAA are fully invested in the Growth Fund. At 10 years to TAA members begin to de-risk into the Pre-Retirement Fund. Then at 5 years to TAA members begin to de-risk further into the Deposit Fund – Active. At TAA members are fully invested in the Deposit Fund – Active.
Statement of Investment Principles
The Trustee is responsible for investment governance, and this includes setting and monitoring the investment strategy for the default arrangement.
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Details of the objectives and the Trustee’s policies with regards to the default arrangement (and other DC investment funds) are set out in a document called the Statement of Investment Principles (“SIP”). The SIP for the Plan is attached as Appendix 1 to this statement.
The aims and objectives of the Plan’s main default arrangement (and other default arrangements) are covered in paragraph 2 and 3 of the attached SIP, and can be summarised as follows:
• The Drawdown Lifestyle: to target a return significantly above inflation within the growth phase and then in the 10 years before a member’s intended TAA switch into an asset allocation designed to be appropriate for members who wish to access their benefits via drawdown.
• The Cash Lifestyle: to target a return significantly above inflation within the growth phase and then in the 10 years before a member’s intended TAA switch into an asset allocation designed to be appropriate for members wishing to take 100% cash at retirement.
The Trustee’s policies in relation to the types of and balance between the investments to be held in respect of the Plan’s default arrangements are covered in paragraph 3 of the attached SIP, and can be summarised as follows:
• For both the Drawdown and Cash Lifestyles, the growth phase contains a significant allocation to equities. The Trustee believes that over the long term, equity market returns are likely to be significantly above inflation and that equities therefore represent the most appropriate asset class to invest in to achieve the stated objective: to target a return significantly above inflation.
• In the Drawdown Lifestyle, as members approach TAA they de-risk into the Pre-Retirement Fund. The asset classes within this fund are a mixture of diversified growth funds, corporate bonds, index-linked gilts and global equities. The Trustee believes that a well-diversified exposure to different asset classes (with a significant amount of growth assets) will allow members’ pots to continue to accumulate whilst at the same time reducing the impact on their overall pension pot from market falls shortly before TAA.
• In the Cash Lifestyle, as members approach TAA they are gradually de-risked into 100% cash at their TAA. The Trustee believes that members invested in this lifestyle will likely wish to take their pension pot in one lump-sum at their TAA and that de-risking into a low-risk asset such as cash will help to preserve the absolute value of their pension pots around TAA.
The Trustee’s policies in relation to risks, expected return, realisation and environmental, social and governance factors in respect of the Plan’s DC investments (including the default arrangements) is covered in paragraph 5, appendix 2, paragraph 7 and paragraph 8 of the attached SIP. During the Plan year, the Trustee undertook a review of its beliefs on responsible investment and these views were formalised within the SIP following the end of the Plan year.
Paragraph 3 of the SIP explains that the Plan’s main default arrangement was designed to be in the best interests of the majority of members based on the demographics of the Plan’s membership.
Review
The Plan’s default arrangements are reviewed on at least a triennial basis or following any significant changes in the demographics of the membership.
The Trustee started a review of the Plan’s lifestyle strategies and self-select fund range (including the default arrangements, being the Drawdown Lifestyle and the Cash Lifestyle) in November 2017. The review of the self-select fund range was concluded during the Plan year and the review of the lifestyle strategies is expected to conclude in the upcoming Plan Year between 1 April 2019 to 31 March 2020.
The review of the default arrangements included a review of both the performance of each default and each default strategy. When undertaking the review of the lifestyle strategies, the Trustee initially
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considered whether the current two phase structure remained appropriate or whether the initial growth phase should be split into two phases, with the earlier phase targeting higher expected returns. Taking into account the analysis provided by its advisors and the possible disruption to members the Trustee concluded the current structure remained appropriate. The Trustee is also considering the underlying fund allocation of the white-labelled funds used in the lifestyles. In particular the Trustee considered whether the level of expected returns could be increased within the growth phase, and which assets would be most appropriate to achieve this, including if the current diversified growth funds are suitable and if illiquid assets could be used in the Plan. Within the de-risking phase of the Drawdown Lifestyle the Trustee is considering whether the allocation to bonds remains appropriate for a member wishing to drawdown income at retirement, or whether there are alternative asset classes better suited to target income drawdown. Within the Cash Lifestyle, the Trustee is considering whether the 100% allocation to a cash fund at retirement remains appropriate or whether a low level of growth should be targeted to help prevent the real value of members’ pension pots being eroded due to inflation.
Due to the level of scrutiny undertaken by the Trustee, and the change in investment platform provider at the end of 2018, the review of the default arrangements will continue into 2019.
We will provide further details of the review next year once it has been completed.
The last review of the default arrangements prior to this occurred in June 2016.
3 Requirements for processing financial transactions
During the Plan Year, the Trustees ensured that “core financial transactions” were processed promptly and accurately by the administrator, Willis Towers Watson (“WTW”) as explained below.
“Core financial transactions” include (but are not limited to):
• investment of contributions in the Plan
• transfers of assets relating to members into and out of the Plan
• transfers of assets relating to members between different investments within the Plan
• payments from the Plan to, or in respect of, members.
The Trustee has a service level agreement (“SLA”) in place with the administrator which covers the accuracy and timeliness of all core transactions. The Plan’s administrator has also confirmed that there are adequate internal controls to ensure that core financial transactions relating to the Plan are processed promptly and accurately. The key processes adopted by the administrator to help ensure core transactions are processed promptly and accurately and that the SLAs are met are as follows:
• A task logging system in in place which is reviewed regularly for upcoming workloads and tasks are allocated on a daily basis;
• A regular cash reconciliation is carried out;
• All monetary transactions are checked and peer reviewed by a senior administrator or above before being authorised by a team leader. All monetary transactions above £250,000 require a second level of authorisation by an administration manager or above;
• Bank balances are reviewed daily by the treasury team; and
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• To ensure promptness, all payments are made electronically, and members have online access to facilitate contribution and investment decisions.
In addition to the above, the following actions were undertaken during the Plan year in relation to the administration services provided:
• The Plan’s auditor carried out contributions testing as part of the annual scheme audit for the Plan Year and this did not reveal any issues;
• The payment of contributions to the Plan and their investment within the Plan were monitored on a monthly basis to ensure they were completed within statutory timeframes and in accordance with an annual “calendar” agreed between the Trustee, employer payroll and the administrator;
• The Trustee monitored all core financial transactions by reviewing regular reports from employer payroll, the administrator and the investment platform provider to check whether core financial transactions were accurate, up to date and completed within statutory timeframes and within service levels agreed with these parties. Using this information, the Trustee is satisfied that over the period covered by this Statement:
• There have been no material administration errors in relation to processing core financial transactions; and
• All core financial transactions have been processed promptly and accurately during the Plan year.
• Quarterly reporting provided by the administrator to the Trustee give further detail on any administration issues, delays and member complaints that occurred during the reporting period. This included background information on the issues, how these have been corrected and any actions that have been agreed in order to resolve outstanding issues. Member complaints were also logged by the administrator on an internal system and communicated to the Trustee via an external log. A root cause analysis of any issues was completed by the administrator where it considered it appropriate to do so or at the request of the Trustee.
Whilst there were some administration service delays during the year, the Trustee believes this was a temporary decrease in service levels due to the transfer of administration service from JLT to WTW in mid-2018. The Trustee held regular conference calls with WTW to discuss SLA performance throughout the Plan Year and the backlog of work following the switch throughout the Plan Year. The Trustee notes that over the Plan Year there was a consistent improvement in SLA performance and expects SLA performance to return to expected levels in the upcoming Plan year. The Trustee continues to monitor the SLA performance through the reports provided by WTW and in regular discussions with them. The Trustee considers WTW’s usual service standards to be high in comparison to other third party administrators.
Overall, the Trustee had no major concerns with the administration of the Plan during the Plan Year.
4 Assessment of member-borne charges and transaction costs
4.1 Level of member-borne charges and transaction costs
The Trustee is required to set out the on-going charges incurred by members in this Statement. The stated charges include administration costs since these are met by the members. The Trustee calculated the “charges” borne by members of the Plan for the period 1 April 2018 to 31 March 2019.
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During the Plan Year,
• The annual management charges (which include investment platform fees), and additional expenses (shown in the total expense ratio) were borne by members invested in all lifestyles and self-select funds.
• Zurich was replaced by Legal & General (“L&G”) as the Plan’s investment platform provider at the end of 2018. This transition resulted in reduced platform fees for most funds, with no platform fee being charged on funds managed by L&G. As part of the switch, there were also changes to the underlying passive funds as these were changed from BlackRock to L&G funds, resulting in further fee changes, as shown in the tables on pages 5 - 7. Members did not bear any charges associated with the platform switch, and L&G reimbursed members any transaction costs that occurred as a result of the transfer.
• In addition to any fund related charges; an additional charge of 0.10% pa is levied on members to cover some of the costs involved in running the Plan, including administration, audit and legal costs.
• The total member borne charges for the underlying funds of the Drawdown and Cash Lifestyles varied between 0.229% and 0.507%.
• The tables shown later in this section show the range of fees that members paid over the year, taking into account the fees for both before and after the platform switch. Where a range is given, the lower fee reflects the fee that members pay on the L&G platform, and the higher fee reflects the fee on the previous Zurich platform.
Transaction costs
The Trustee is also required to disclose the level of any transaction costs applicable to all of the Plan’s funds, including the default arrangements and self-select funds. These are incurred when the Plan’s investment managers buy and sell assets within funds but are exclusive of any costs incurred when members invest in and switch between funds. The transaction costs are borne by members and are reflected in the unit price of the funds.
The charges and transaction costs have been supplied by L&G who is the Plan’s platform provider. Transaction costs have been shown for funds on L&G’s platform only, as data for some of the funds on the previous platform with Zurich were unavailable in the prescribed format. As members will be invested in these funds over future periods, these costs are more reflective of what members may expect going forwards.
When preparing this section of the statement the Trustee has taken account of statutory guidance. Due to the way in which transaction costs have been calculated it is possible for figures to be negative; since transaction costs are unlikely to be negative over the long term the Trustee has shown any negative figure as zero.
Default arrangements
Fund Name Annual Management Charge
(% pa)
Total Expense Ratio
(% pa)
Transaction Costs
(% pa) Drawdown Lifestyle
Pre-Retirement Fund 0.351-0.405 0.375-0.431 0.076
Growth Fund 0.320-0.374 0.342-0.400 0.066
Cash Lifestyle Pre-Retirement Fund 0.351-0.405 0.375-0.431 0.076
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Growth Fund 0.320-0.374 0.342-0.400 0.066
Deposit Fund – Active 0.220-0.242 0.228-0.250 0.001
Funds used within the non-default lifestyle strategies and self-select range
Fund Name
Annual Management Charge
(% pa)
Total Expense Ratio
(% pa)
Transaction Costs
(% pa)
Fixed Interest Gilt Fund - Passive 0.130-0.167 0.130-0.171 0.000
Index Linked Gilt Fund - Passive 0.130-0.167 0.130-0.171 0.031
European (Ex UK) Equity Fund - Passive 0.140-0.167 0.140-0.182 0.009
Japan Equity Fund - Passive 0.140-0.167 0.140-0.179 0.000
Global Equity (50:50) Fund - Passive 0.138-0.167 0.138-0.175 0.000
Pacific Rim (ex Japan) Equity Fund - Passive 0.140-0.167 0.140-0.182 0.004
Shariah Fund - Passive 0.420-0.442 0.420-0.442 0.101
UK Equity Fund - Passive 0.135-0.167 0.135-0.170 0.000
US Equity Fund - Passive 0.140-0.167 0.140-0.175 0.000
Short Dated Government Bond Fund - Active 0.210-0.232 0.210-0.232 0.059
Corporate Bond Fund - Active 0.300-0.322 0.312-0.334 0.002
Overseas Bond Fund - Active 0.370-0.392 0.370-0.392 0.080
Property Fund – Active 0.620-0.642 0.652-0.674 0.000
Commodities Derivatives Fund - Active 0.520-0.542 0.710-0.732 0.180
Deposit Fund – Active (as a self select option) 0.220-0.242 0.228-0.250 0.001
Emerging Markets Equity Fund - Active 0.795-0.817 0.855-0.997 0.000
Ethical Fund - Active 0.470-0.492 0.600-0.622 0.124
European (Ex UK) Equity Fund - Active 0.410-0.432 0.470-0.492 0.191
Far East (Ex Japan) Equity Fund - Active 0.870-0.892 1.110-1.132 0.078
Global Equity Fund - Active 0.690-0.792 0.710-0.812 0.078
Japan Equity Fund - Active 0.870-0.892 1.020-1.042 0.243
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UK Equity Fund - Active 0.870-0.892 0.890-0.912 0.066
UK Smaller Companies Equity Fund - Active 0.720-0.742 0.720-0.742 0.060
UK Specialist Fund - Active 0.820-0.842 0.850-0.872 0.000
US Equity Fund - Active 0.720-0.742 0.810-0.832 0.142
Diversified Growth Fund - Active 0.655-0.787 0.714-0.846 0.205
Diversified Growth Fund - Semi-Passive 0.350-0.372 0.379-0.401 0.069
Annuity Targeting Fund 0.195-0.225 0.200-0.232 0.006
Pre-Retirement Fund (as a self select option) 0.351-0.405 0.375-0.431 0.076
Growth Fund (as a self select option) 0.320-0.374 0.342-0.400 0.066
4.2 Illustration of charges and disclosure costs
The following tables set out an illustration of the impact of charges and transaction costs on the projection for an example member’s pension savings.
• The “before costs” figures represent the savings projection assuming an investment return with no deduction of member borne fees or transaction costs. The “after costs” figures represent the savings projection using the same assumed investment return but after deducting member borne fees and an allowance for transaction costs.
• The transaction cost figures used in the illustration are those provided by the managers over the last year, supplied by L&G who is the Plan’s platform provider, subject to a floor of zero (ie the illustration does not assume a negative cost over the long term).
• The illustration is shown for the Drawdown Lifestyle since this is the arrangement with the most members invested in it, as well as four funds from the Plan’s self-select fund range. The four self-select funds shown in the illustration are:
• the fund with the highest before costs expected return – this is the Emerging Markets Equity Fund - Active.
• the fund with the lowest before costs expected return – there are a number of funds that have a before costs expected return of 2.0% pa below inflation but for the purpose of this illustration, the Deposit Fund – Active has been used.
• the fund with highest annual member borne costs (including transaction costs) – this is the Japan Equity Fund – Active.
• the fund with lowest annual member borne costs (including transaction costs) – this is the Fixed Interest Gilt Fund – Passive.
Deferred member illustration
• The following illustration is for an average deferred member who will make no further contributions into the Plan.
• Values shown are estimates and are not guaranteed. The illustrations do not indicate the likely variance and volatility in the possible outcomes from each fund.
• The projection shown is over 40 years, being the approximate duration that the youngest deferred Plan member has until they reach the target access age of 60.
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• Projected pension pot values are shown in today’s terms, and do not need to be reduced further for the effect of future inflation. Inflation is assumed to be 2.5% each year.
• The starting pot size used is £29,300, as this is the median pot size for a deferred member in the Plan.
• The illustration assumes that no contributions are being paid. • The projected annual returns used are as follows:
o Default option: 2.3% above inflation for the initial years, gradually reducing to a return of 0.5% above inflation at the ending point of the lifestyle.
o Emerging Markets Equity Fund – Active: 4.0% above inflation o Deposit Fund – Active: 2.0% below inflation o Japan Equity Fund – Active: 3.0% above inflation o Fixed Interest Gilt Fund: 2.0% below inflation
• No allowance for active management has been made in the return assumptions (eg the assumed returns for a passive and active global equity fund are the same).
Active member illustration
• The following illustration is for a young active member who will continue to make contributions until target access age is reached.
• Values shown are estimates and are not guaranteed. The illustrations do not indicate the likely variance and volatility in the possible outcomes from each fund.
• The projection shown is over 40 years, being the approximate duration that the youngest active Plan member has until they reach the target access age of 60.
• Projected pension pot values are shown in today’s terms, and do not need to be reduced further for the effect of future inflation. Inflation is assumed to be 2.5% each year.
• The starting pot size used is £3,100, as this is the median pot size for active members aged 25 and under in the Plan.
• Salaries could be expected to increase above inflation to reflect members becoming more experienced and being promoted. However, the projections assume salaries increase in line with inflation to allow for prudence in the projected values.
• The starting salary used is £23,000, as this is the median salary of active members aged 25 and under in the Plan.
• The illustration assumes that until age 45 total contributions (employee plus employer) are 12.0% of salary per year. Then from age 45 it assumes total contributions (employee plus employer) are 13.5% to reflect the additional matching that the employer offers members over the age of 45. The contributions used are the median contribution rate for active members aged 25 and under. The illustration assumes that employee percentage contributions remain constant.
• The projected annual returns used are as follows:
Projected pension pot in today's money - deferred member
Years invested
Before costs
After costs
Before costs
After costs
Before costs
After costs
Before costs
After costs
Before costs
After costs
1 £30,000 £29,900 £30,500 £30,200 £28,700 £28,600 £30,200 £29,800 £28,700 £28,7003 £31,400 £31,000 £33,000 £32,200 £27,600 £27,400 £32,000 £30,900 £27,600 £27,5005 £32,800 £32,200 £35,600 £34,200 £26,500 £26,200 £34,000 £31,900 £26,500 £26,300
10 £36,800 £35,300 £43,400 £39,900 £23,900 £23,400 £39,400 £34,800 £23,900 £23,60015 £41,200 £38,800 £52,800 £46,600 £21,600 £20,900 £45,600 £37,900 £21,600 £21,20020 £46,200 £42,600 £64,200 £54,400 £19,600 £18,700 £52,900 £41,300 £19,600 £19,00025 £51,700 £46,800 £78,100 £63,500 £17,700 £16,700 £61,300 £45,100 £17,700 £17,10030 £58,000 £51,400 £95,000 £74,200 £16,000 £14,900 £71,100 £49,100 £16,000 £15,40035 £63,200 £54,900 £115,600 £86,600 £14,400 £13,300 £82,400 £53,500 £14,400 £13,80040 £66,000 £56,100 £140,700 £101,100 £13,100 £11,900 £95,600 £58,300 £13,100 £12,400
Fixed Interest Gilt Fund - Passive
Emerging Markets Equity Fund - Active Deposit Fund - Active Japan Equity Fund - Active Drawdown Lifestyle
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o Default option: 2.3% above inflation for the initial years, gradually reducing to a return of 0.5% above inflation at the ending point of the lifestyle.
o Emerging Markets Equity Fund – Active: 4.0% above inflation o Deposit Fund – Active: 2.0% below inflation o Japan Equity Fund – Active: 3.0% above inflation o Fixed Interest Gilt Fund: 2.0% below inflation
• No allowance for active management has been made in the return assumptions (eg the assumed returns for a passive and active global equity fund are the same).
In the above illustration for an active young member the increase in projected pot size is due to a combination of investment returns and pension contributions being paid. If a member invests in funds with an expected return below inflation and no contributions are paid, then the expected pension pot in today’s money will fall over time. This can be seen in the Deposit Fund – Active example in the Deferred member illustration, which assumes that no contributions are being paid.
5 Value for members assessment
Member borne charges
When assessing the charges and transaction costs which are payable by members, the Trustee is required to consider the extent to which the charges and transaction costs payable by members represent good value for members. The Trustee has therefore assessed the extent to which the charges set out in section 4.1 above for the period 1 April 2018 to 31 March 2019 represent good value for members.
There is no legal definition of “good value” and so the process of determining good value for members is a subjective one. We have received advice on how to assess good value from our advisers and have considered regulatory guidance.
As a starting point to assessing good value, the Trustee’s DC consultant, has looked at the level of charges members pay set out in 4.1 above compared to the investment returns, overall fund performance and quality of services received and concluded as follows:
• Over the year, members in the Drawdown lifestyle experienced positive returns, as equity markets rebounded strongly at the start of 2019 following falls in 2018. Members closer to retirement experienced lower returns but with lower risk, as their greater allocation to bonds offered some protection against volatile equity markets over the year, consistent with the objectives of the default strategy. The growth phase of the default strategy has produced good returns over the three years to 31 March 2019.
Projected pension pot in today's money - active young member
Years invested
Before costs
After costs
Before costs
After costs
Before costs
After costs
Before costs
After costs
Before costs
After costs
1 £6,000 £5,900 £6,000 £6,000 £5,800 £5,800 £6,000 £5,900 £5,800 £5,8003 £11,900 £11,800 £12,300 £12,100 £11,000 £10,900 £12,000 £11,800 £11,000 £10,9005 £18,100 £17,900 £19,000 £18,500 £15,900 £15,800 £18,500 £17,800 £15,900 £15,900
10 £34,900 £34,100 £38,400 £36,600 £27,500 £27,200 £36,300 £33,800 £27,500 £27,30015 £53,700 £51,900 £61,900 £57,600 £38,000 £37,300 £56,900 £51,300 £38,000 £37,60020 £74,800 £71,500 £90,600 £82,200 £47,500 £46,400 £80,900 £70,300 £47,500 £46,90025 £98,700 £93,300 £125,800 £111,200 £56,400 £54,900 £109,000 £91,400 £56,400 £55,50030 £127,100 £118,800 £170,200 £146,700 £65,700 £63,700 £143,100 £115,800 £65,700 £64,60035 £154,800 £142,900 £224,300 £188,000 £74,200 £71,600 £182,600 £142,400 £74,200 £72,70040 £177,400 £161,600 £290,000 £236,300 £81,800 £78,600 £228,400 £171,400 £81,800 £80,000
Fixed Interest Gilt Fund - Passive
Emerging Markets Equity Fund - Active Deposit Fund - Active Japan Equity Fund - Active Drawdown Lifestyle
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• The Plan’s passive funds all tracked their respective benchmarks within reasonable tolerances. Performance of the Plan’s active funds was mixed, although most funds underperformed their respective benchmarks after fees. The Trustee, with the help of its advisors, continues to monitor these funds on a regular basis and will replace funds if appropriate.
• Higher costs and charges in specialist funds are usual.
• A comparison of the investment charges against the wider DC market showed that the investment charges in the Plan, excluding the 0.10% pa levy for non-investment related costs, are generally low. In relation to the self-select funds, most of the fees are competitive; however, a small minority of self-select funds have been identified as being less competitively priced.
• A comparison of the member-borne charges against the wider DC market showed that members in other similar sized unbundled schemes do not generally contribute towards administration, audit or legal costs. However bundled arrangements are common in smaller sized schemes where members pay for the administration costs as well as investment costs and members in such schemes typically pay around 0.15% to 0.20% pa more than unbundled schemes. Overall the Trustee believes the 0.10% additional levy for administration, audit and legal costs offers good value to members as it is materially lower than costs paid by smaller bundled schemes and covers audit and legal services in addition to administration.
• Following the change of investment platform provider during 2018, the investment charges borne by members have reduced on most funds. The Trustee reviewed the previous platform provider, Zurich, due to concerns over the announced takeover by Scottish Widows and lack of clarity on the future direction of the business. The Trustee also had some concerns over the lack of investment from Zurich in upgrading its platform and the loss of several highly regarded individuals. As such, the Trustee believes that, in addition to the reduced fees, members will benefit from the switch to L&G’s platform due to L&G’s strong commitment to the UK pensions market and its intended development plans regarding its platform.
• Whilst there were some administration service delays during the year the Trustee believes this was a temporary decrease in service due to the change in administration provider in mid-2018. Overall, there were no material administration errors during the year and the Trustee considers Willis Towers Watson’s usual service standards to be high in comparison to other third party administrators.
Wider assessment
The employer paid for all other costs and charges relating to the Plan, such as governance, communication and investment adviser fees for the relevant period.
The Trustee’s DC consultant has assessed the wider services and benefits provided by the Plan (the benefits of membership) as paid for by the employer, during the Plan Year.
This wider assessment considered the following criteria:
• Plan management and governance; • Investment; • Communications; • Scheme design; and • At retirement services.
This concluded that:
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• The Trustee Board, committees and individual Trustees all have clearly defined roles and responsibilities, and knowledge and understanding is of a high standard. As part of the wider governance structure, the Trustee delegates some responsibilities to sub-committees. This helps ensure more effective decision making and governance of the various aspects of the Plan. The Plan’s legal advisors carried out an effectiveness review of the Trustee board over the year. This involved an assessment of how effectively the Trustee, its sub-committees and its support team and advisers function. This review concluded that overall the Trustee Board is effective and able to govern the Plan well, and suggested some points for the Trustee to consider on matters such as member communications, access to member feedback and the use of available membership data.
• The Plan offers members three lifestyle strategies, targeting income drawdown, cash lump sum and annuity purchase at retirement. Members also have access to a range of self-select funds, covering an appropriate range of asset classes. The performance of the lifestyle strategies and the self-select funds are reviewed by the Trustee on a quarterly basis. The Trustee is undertaking a review of the lifestyle (including the performance and strategy of the default arrangements) and expects to conclude this review in the upcoming Plan year. The Trustee concluded a review of the self-select fund range during the year in which it noted that there was some overlap in the fund range, which may confuse members. To reduce this, the Trustee has agreed to rationalise the self-select fund range with the agreed changes expected to be implemented in the upcoming Plan year. The Trustee also undertook a review of its beliefs on financially material considerations including climate change and other environmental, social and governance (“ESG”) considerations during the Plan year, and will formalise its views in the Plan’s Statement of Investment Principles in the upcoming Plan year.
• The Trustee employs a dedicated independent member communications consultant, who works with them, the Plan’s third party consultants and the Plan’s administrator to issue member guidance documentation and strategic communications. Furthermore, members can access fund information online, such as plan documentation and fund factsheets and have access to a retirement lifestyle planner. Communications are overseen by the Engagement Sub-Committee on a quarterly basis. The Trustee makes use of a wide suite of communication tools and resources that are tailored to the reader, and are timely and accurate.
• Support and guidance offered to members approaching retirement is clear and timely and reflects the choices members are making when taking their benefits. During the Plan Year, the Trustee undertook a selection exercise to choose a Master Trust provider that can provide members with post-retirement services. This option is expected to become available to members in the upcoming Plan Year.
Conclusion
Taking all factors into account, the Trustee believes that the costs and charges members pay represent good value when compared to the benefits the members receive in relation to the Plan. The Trustee believes this because:
• There are a number of benefits provided by the Plan that are paid by the employer. Plan governance, investment advice and communication costs are all met by the employer.
• Most of the investment related fees for the lifestyle and self-select funds are competitively priced and overall the investment charges are generally low in comparison to the wider market.
• As a result of the platform transition members no longer pay platform fees on any funds managed by L&G.
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• The Trustee believes the quality of the non-investment related services provided to members are all either good or very good. Furthermore, the costs associated with these services seem reasonable when compared to other pension schemes, taking into account the size of the Plan.
• The growth phase of the default strategy has produced good returns over the three years to 31 March 2019. Members closer to retirement experienced lower returns but with lower risk, as their greater allocation to bonds offered some protection against volatile equity markets over the year, consistent with the objectives of the default strategy.
To help compare criteria and assess any changes between Plan years, the Trustee has rated each criteria as either Poor, Fair, Good or Very Good. The following chart compares the ratings given for this Plan year against the ratings given in the previous Plan year’s assessment. This Plan year, the Trustee has split the investment criteria into two sections: the default strategy and the self-select investment range, whereas in the previous Plan year it was considered as a single section.
The Trustee aims to further improve value for members in the future by taking the following actions during the upcoming Plan Year:
• Continuing to monitor administrator service levels and performance to ensure member experience improves in the upcoming year;
• Defining targets for Conditional Data and implement corrective action to improve data scores for Common and Conditional Data;
• Concluding the review of the default investment strategy and alternative lifestyles to assess whether the current options remain appropriate for members;
• Agreeing actions to take following the review of the Trustee’s investment beliefs on financially material considerations including climate change and other environmental, social and governance (“ESG”) considerations; and
• Concluding the implementation process of L&G’s Master Trust as a post-retirement option and reviewing the retirement communications sent to members.
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6 Trustee knowledge and understanding
The Plan’s Trustee directors are required to maintain appropriate levels of knowledge and understanding to run the Plan effectively. The Trustee has measures in place to comply with the legal and regulatory requirements regarding knowledge and understanding of relevant matters, including investment, pension and trust law. Details of how the knowledge and understanding requirements have been met during the period covered by this Statement are set out below.
The Trustee takes their training and development responsibilities seriously and keeps a record of the training completed by each member of the board. This training record has been reviewed and updated quarterly during the Plan Year to identify any gaps in the knowledge and understanding across the board as a whole. This allows the Trustee to work with their professional advisers to fill in any gaps.
The Trustee directors themselves have Actuarial, Investment, Risk, Legal and Investment Transaction experience. In addition, the Trustee receives advice on investment, legal, actuarial, communication and other related issues from their advisers.
Four new trustees were appointed during the Plan Year. When vacancies for member-nominated trustee directors arise, a thorough nomination/election process is undertaken to fill these positions. All Trustee directors are supported and provided with formal training in their role and duties. Newly appointed Member Nominated Directors are required to complete the Pensions Regulator’s trustee toolkit within six months of taking office, and must complete two modules of the trustee toolkit before putting themselves forward for the position. The trustee toolkit is a free, online learning programme from the Pensions Schemes Regulator aimed at trustees of occupational pension scheme.
In particular, during the Plan Year, the Trustee directors have met the requirements for knowledge and understanding by:
• Attending external seminars and conferences hosted by investment managers, legal advisers, consultants and industry bodies such as the PSLA to keep up to date with pensions law and the principles of DC investing;
• Receiving quarterly updates on topical issues from their legal advisers and other advisers at each DC committee meeting, administration committee meeting and Trustee board meeting to keep up to date with pensions law and the principles of DC investing;
• Receiving ad hoc training from their advisers at committee and Trustee board meetings, for example on DC governance, to keep up to date with pensions law and to consider their existing policies on these area;
• Reviewing the SIP and all other documents setting out the Trustee’s current policies as appropriate to ensure they have a good working knowledge of these documents;
• Receiving legal advice on various aspects of the Plan’s trust deed and rules, and any amendments required, such that they have a working knowledge of this document; and
• Holding an annual training day, covering subjects that are topical to occupational pension plans and specific to the Plans.
The Plan’s legal advisors, Sackers, carried out an effectiveness review of the Trustee board over the Plan year. This involved an assessment of how effectively the Trustee, its sub-committees and its support team and advisers function. Questionnaires were issued to all Trustee directors to complete.
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The outcomes of the review will be used by the Trustee in the upcoming Plan Year to help determine where improvements can be made to the effectiveness of the board.
For the reasons set out above, the Trustee board’s combined knowledge and understanding, together with the advice available to the board, enables them to properly exercise their functions as Trustee of the Plan.
7 Security of Assets
The funds that are offered to members were provided through a “platform” operated by Zurich Assurance Limited (“Zurich”) for most of 2018. The Trustee switched platform provider to Legal and General Assurance (Pensions Management) Limited (“L&G”) towards the end of 2018. The Trustee has entered into an insurance policy with L&G which provides access to funds managed by third party fund managers. It had previously entered into such an arrangement with Zurich. This is a common way of investing under UK defined contributions pension schemes and helps the Trustee to provide easy access to a range of investment funds.
The Trustee’s policy with L&G is currently covered by the Financial Services Compensation Scheme (FSCS). In the unlikely event that L&G is unable to meet its financial obligations, if a solvent insurer cannot be found to take on the business, the Trustee would have a claim on the FSCS for up to the value of the policy.
The FSCS applies to the risk of L&G not being able to meet its obligations. Under the policy, L&G offers access to a range of funds managed by third parties. Some of the third party funds are structured as unit trusts or investment companies in the UK or in EU countries. Those funds are isolated from the liabilities of the manager and its group of companies.
Some other third party funds are provided by life insurance companies under a reinsurance contract between L&G and those companies. The insurance companies concerned structure their businesses with a view to minimising the risk of other insurance liabilities having an impact on the funds which are used for the Plan.
It is not possible to completely remove the risk that some or all of a member’s investment would not be recovered if a fund provider becomes insolvent and there can be no guarantee that funds will never be affected by fraud. However, the funds are subject to strict financial regulation and the funds, and the way the Plan accesses them, are structured to minimise the risk of other liabilities having an adverse impact.
The Trustee keeps the way in which the Plan accesses the funds under review. It is satisfied that the current arrangements are in line with good industry practice.
Signed on behalf of the Trustee
Colin Stewart Chair of the Trustee
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Statement of Investment Principles for the Citi (UK) Pension Plan (the “Plan”)
1. Introduction
This Statement of Investment Principles (“SIP”) sets out the policy of the Trustee of the Citi
(UK) Pension Plan (the “Plan”) on various matters governing decisions about the investments
of the Plan. This SIP replaces the previous SIP dated November 2016.
The SIP is designed to meet the requirements of Section 35 (as amended) of the Pensions Act
1995 (“the Act”), the Occupational Pension Schemes (Investment) Regulations 2005.
This SIP has been prepared after obtaining and considering written professional advice from
LCP, the Plan’s investment adviser, whom the Trustee believes to be suitably qualified and
experienced to provide such advice. The advice takes into account the suitability of
investments including the need for diversification, given the circumstances of the Plan, and the
principles contained in this SIP. The Trustee has consulted with the relevant employer in
producing this SIP.
The Trustee will review this SIP from time to time and, with the help of its advisers, will amend
it as appropriate. These reviews will take place as soon as practicable after any significant
change in investment policy, or in the demographic profile of the relevant members in respect
of the Plan, and at least once every three years.
Appendix 1 contains brief details of the respective responsibilities of the Trustee, investment
advisers and investment managers. It also contains a description of the basis of remuneration
of the investment adviser and the investment managers.
2. Investment objectives
The Trustee’s primary objectives for the Plan are to provide members with access to:
an appropriate range of investment options, reflecting the membership profile of the Plan
and the variety of ways that members can draw their benefits in retirement; and
a default investment option that the Trustee believes to be reasonable for those
members that do not make their own investment decisions. The objective of the default
option is to generate returns significantly above inflation whilst members are some
distance from retirement, but then to switch automatically and gradually to lower risk
investments as members near retirement.
3. Investment strategy
The Trustee, with the help of its advisers and in consultation with the employer, carried out a
review of the investment strategy for the Plan in early 2015, taking into account the objectives
described in Section 2 above and the increased flexibility for DC members announced in the
2014 Budget.
For the Plan, the Trustee offers members a range of investment funds. Each member is
responsible for specifying one or more funds for the investment of their account, having regard
to their attitude to the risks involved. The Plan’s main default option was designed to be in the
best interests of the majority of the members based on the demographics of the Plan’s
Appendix 1 of Chair's Statement
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membership following a review in June 2016. The Plan’s main default arrangement is the
Drawdown Lifestyle; this will be the default option if a new member does not make an active
investment choice.
3.1. The Plan’s Main default arrangement
3.1.1. The Drawdown Lifestyle
The default option for new members targets income drawdown at retirement, so if
a member does not choose an investment option, their account will be invested
into the default option, which is managed as a “lifestyle” strategy (ie it
automatically combines investments in proportions that vary according to the time
to retirement – known as Target Access Age or (“TAA”)).
In the initial growth phase the default option is invested in the Growth Fund which
targets a return significantly above inflation. In the 10 years before a member’s
intended TAA, the default option starts to switch gradually into the Pre-retirement
Fund whose asset allocation is designed to be appropriate for members who wish
to access their benefits via drawdown. The charts below show how the default
option’s asset allocation changes as a member approaches retirement and the
composition of both of the component funds.
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3.2. Other default arrangements
The Trustee has identified one other arrangement which could be considered to be
an additional default arrangement and consequently is being treated as a default
arrangement. This is the Cash Lifestyle.
3.2.1. The Cash Lifestyle
The default was set to the Cash Lifestyle for deferred members who during the
review in 2016 were projected to have relatively small pots at retirement.
In the initial growth phase this default option is invested in the Growth Fund which
targets a return significantly above inflation. In the 10 years before a member’s
intended TAA, the default option starts to switch gradually into the Pre-retirement
Fund and then from 5 years before a member’s intended TAA it will switch 100%
into the Deposit Fund – Active. This lifestyle is designed to be appropriate for
members wishing to take 100% cash at retirement.
3.3. Other lifestyle strategies
An Annuity Lifestyle which is designed for a member wishing to take 25% cash and
use the remaining balance to purchase an annuity at retirement, has also been made
available to members.
4. Trustee’s policy to reviewing the investment arrangements
The Trustee will review the strategy used for the default option and the other investment
options at least every three years and as soon as practicable after any significant change in
investment policy, or the demographic profile of relevant members.
The Trustee will also review periodically the relevant members’ use of their options at
retirement or on taking benefits from the Plan to check whether assumptions made about how
members will access their benefits are borne out in practice.
The Trustee has ensured that each of the default options is below the cap on member-borne
charges of 0.75% per annum. The Trustee will ensure that the cap on all member-borne
charges will continue to apply to members’ funds which remain invested in the default
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arrangements. This will be the case even if the member leaves their employer or stops
making contributions and becomes a non-contributing, or ‘deferred’ member.
5. Considerations made in determining the investment arrangements
When deciding how to invest the Plan’s assets, the Trustee considers a number of risks,
including, but not limited to, those set out in Appendix 2. Some of these risks are more
quantifiable than others, but the Trustee has tried to allow for the relative importance and
magnitude of each risk.
The Trustee considered a wide range of asset classes for investment, and the expected
returns and risks associated with those asset classes. The key financial assumption made by
the Trustee in determining the investment arrangements is that equity-type investments will,
over the long term, outperform gilts by 4.0% pa.
In determining the investment arrangements for the Plan the Trustee also took into account:
the best interests of members and beneficiaries;
the profile of the membership and what this was likely to mean for the choices members
might make upon reaching retirement;
the risks and rewards of a number of different lifestyle strategies; and
the need for appropriate diversification within the default strategy and between the other
investment options offered to members.
6. Implementation of the investment arrangements
Before investing in any manner, the Trustee obtains and considers proper written advice from
its investment adviser on the question of whether the investment is satisfactory, having regard
to the need for suitable and appropriately diversified investments.
Details of the investment managers, their objectives and investment guidelines are set out in
the separate Investment Policy Implementation Document.
In respect of the Plan, the Trustee has entered into a contract with a platform provider, who
makes available the range of investment options to members. There is no direct relationship
between the Plan and the underlying investment managers of the DC investment funds. The
Trustee has signed an agreement with a platform provider in respect of the Plan, setting out in
detail the terms on which the platform operates.
7. Realisation of investments
The investment managers have discretion over the timing of realisation of investments of the
fund they manage and in considerations relating to the liquidity of investments. For the Plan,
the Trustee’s policy is to invest in funds that offer daily dealing to enable members to readily
realise and change their investments.
8. Consideration of financially material matters
The Trustee has considered how environmental, social, governance (“ESG”) should be taken
into account in the selection, retention and realisation of investments, given the time horizon of
its members.
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The Trustee expects its investment managers to take account of financially material
considerations (including climate change and other ESG considerations) where permissible
within applicable guidelines and restrictions. The Trustee seeks to appoint managers that
have appropriate skills and processes to do this, and from time to time reviews how its
managers are taking account of these issues in practice.
The Trustee has delegated responsibility for the selection, retention and realisation of
investments within all investment funds to the underlying investment managers (within certain
guidelines and restrictions).
In pooled funds, the Trustee has limited influence over managers’ investment practices,
particularly in relation to those pooled funds which are designed to track an index
(passive funds) where the choice of index dictates the assets held by the manager. The
Trustee accepts that the role of the passive manager is to deliver returns in line with the
index and this approach is in line with the basis on which their current strategy has been
set. However, the Trustee will periodically review the indices employed for this purpose
and encourages its managers to improve their practices where appropriate. In relation to
funds where the manager is permitted to make active decisions about the selection,
retention and realisation of investments, the Trustee expects the managers to consider
all financially material factors, including ESG-related issues where permissible within
applicable guidelines and restrictions.
The Trustee will review how ESG-related issues are taken into account in the investment
processes adopted by their investment managers within the default option on a regular basis.
The Trustee will challenge these approaches where appropriate and will report on ESG-related
issues in relation to the default option as part of their implementation policy that will be
produced annually.
9. Non-financial matters
The Trustee does not take in to account any non-financial matters (ie matters relating to the
ethical and other views of members and beneficiaries, rather than considerations of financial
risk and return) in the selection, retention and realisation of investments. However, the
Trustee recognises that some members may wish to invest specifically in ethical or Shariah
compliant funds and offers members appropriate funds to achieve this.
10. Stewardship
The Trustee recognises its responsibilities as owners of capital, and believes that good
stewardship practices, including monitoring and engaging with investee companies, and
exercising voting rights attaching to investments, protect and enhance the long-term value of
investments. The Trustee has delegated to its investment managers the exercise of rights
attaching to investments, including voting rights, and engagement with issuers of debt and
equity and other relevant persons about relevant matters such as performance, strategy, risks
and ESG considerations.
The Trustee does not monitor or engage directly with issuers or other holders of debt or equity.
It expects the investment managers to exercise ownership rights and undertake monitoring
and engagement in line with the managers’ general policies on stewardship, as provided to the
Trustee from time to time, taking in to account the long-term financial interests of the
beneficiaries. The Trustee seeks to appoint managers that have strong stewardship policies
and processes, reflecting where relevant the recommendations of the UK Stewardship Code
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issued by the Financial Reporting Council, and from time to time the Trustee reviews how
these are implemented in practice.
For on behalf of the Trustee of the Citi (UK) Pension Plan:
Signed:
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Responsibilities, decision-making and fees
The Trustee has decided on the following division of responsibilities and decision-making for
the Plan. This division is based upon the Trustee’s understanding of the various legal
requirements placed upon it, and its view that this division allows for efficient operation of the
Plan overall, with access to an appropriate level of expert advice and service. The Trustee’s
investment powers are set out within the Plan’s governing documentation.
1. Trustee
In broad terms, the Trustee is responsible in respect of investment matters for:
monitoring the exercise of the investment powers that they have delegated to the
investment managers and monitoring compliance with Section 36 of the Act;
formulating a policy on socially responsible investment issues;
formulating a policy on voting rights;
reviewing the content of this SIP from time to time and modifying it if deemed
appropriate; and
consulting with the employer(s) when reviewing the SIP.
The Trustee has set up a DC Committee, and delegated certain tasks to this Committee.
2. DC Committee
In broad terms, the DC Committee is responsible in respect of investment matters for:
setting the investment strategy, in consultation with the employers;
reviewing the investment policy as part of any review of the investment strategy;
setting the policy for rebalancing between asset classes;
appointing (and, when necessary, dismissing) investment managers, platform providers,
custodians and investment advisers;
monitoring the exercise of the investment powers that they have delegated to the
investment managers and monitoring compliance with Section 36 of the Act;
the reconciliation of the units within the DC arrangements and any other matters raised
within the Committee as to the proper administration of those arrangements;
the preparation and monitoring of the budgets for all aspects of the Plan’s DC
arrangements;
communicating with members as appropriate on investment matters;
formulating a policy in relation to financially material considerations, such as those
relating to ESG considerations (including but not limited to climate change); and
Appendix 1
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Appendix 1 (cont) Compliance with any Code of Practice (or similar guidance) issued by the Pensions
Regulator or any legislative provisions relating, in each case, to the governance of DC
arrangements.
3. Investment platform provider
In broad terms, the investment platform provider will be responsible for:
providing access to a range of funds managed by various investment managers;
providing the Trustee, through the platform, with regular information concerning the
management and performance of the assets; and
having regard to the provisions of Section 36 of the Act insofar as it is necessary to do
so.
4. Investment managers
In broad terms, the investment managers will be responsible for:
managing the portfolios of assets according to their stated objectives, and within the
guidelines and restrictions set out in their respective investment manager agreements
and/or other relevant governing documentation, as agreed with the Trustee;
providing the Trustee with regular information concerning the management and
performance of their respective portfolios;
taking account of financially material considerations (including climate change and other
ESG considerations) as appropriate when managing their respective portfolios where
permissible within applicable guidelines and restrictions; and
having regard to the provisions of Section 36 of the Act insofar as it is necessary to do
so.
5. Custodians
The custodians of the Plan funds (whether there is a direct relationship between the custodian
and the Trustee or not) are responsible for safe keeping of those assets and for facilitating all
transactions within the funds.
6. Investment consultant
In broad terms, the investment adviser will be responsible, in respect of investment matters, as
requested by the Trustee, for:
for the Plan, advising on a suitable fund range and default strategy for the Plan, and how
material changes to legislation or within the Plan’s benefits and membership may impact
this;
advising on the selection, and review, of the investment managers; and
participating with the Trustee in reviews of this SIP.
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Appendix 1 (cont) 7. Fee structures
The Trustee recognises that the provision of investment management and advisory services to
the Plan results in a range of charges to be met, directly or indirectly, by deduction from the
Plan’s assets.
The Trustee has agreed Terms of Business with the Plan’s investment advisers, under which
work undertaken is charged for by an agreed fixed fee or on a “time-cost” basis.
The investment managers and platform provider receive fees calculated by reference to the
market value of assets under management. The fee rates are believed to be consistent with
the managers’ general terms for institutional clients and are considered by the Trustee to be
reasonable when compared with those of other similar providers.
The fee structure used in each case has been selected with regard to existing custom and
practice, and the Trustee’s view as to the most appropriate arrangements for the Plan.
However, the Trustee will consider revising any given structure if and when it is considered
appropriate to do so.
8. Performance assessment
The Trustee is satisfied, taking into account the external expertise available, that there are
sufficient resources to support its investment responsibilities. The Trustee believes that it has
sufficient expertise and appropriate training to carry out its role effectively.
It is the Trustee’s policy to assess the performance of the Plan’s investments, investment
providers and professional advisers from time to time. The Trustee will also carry out
periodically an assessment of its own effectiveness as a decision-making body and will decide
how this may then be reported to members.
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Policy towards risk, risk measurement and risk
management
The Trustee considers that there are a number of different types of investment risk that
are important for the Plan. These include, but are not limited to:
1. Risk of inadequate returns
In the Plan, as members’ benefits are dependent on the investment returns achieved, it
is important that investment options are available which can be expected to produce
adequate real returns over the longer term. Accordingly, equity and equity-based funds,
which are expected to provide positive returns above inflation over the long term, have
been made available to members and feature in the growth phase of the default strategy.
To reduce the chance of a sharp deterioration in members’ benefits close to retirement,
the Trustee has made the default option a “lifestyle” strategy.
2. Risk from lack of diversification
This is the risk that failure of a particular investment, or the general poor performance of
a given investment type, could materially adversely affect the Plan’s assets. The Trustee
believes that the Plan’s DC default strategy is adequately diversified between different
asset classes and within each asset class, and the DC options provide a suitably
diversified range for members to choose from. This was a key consideration when
determining the Plan’s investment arrangements.
3. Investment manager risk
This is the risk that an investment manager fails to meet its investment objectives. Prior
to appointing an investment manager, the Trustee receives written advice from a suitably
qualified individual, and will typically undertake an investment manager selection
exercise. The Trustee monitors the investment managers on a regular basis.
4. Liquidity/marketability risk
For the Plan, this is the risk that core financial transactions, such as investing and
disinvesting members’ contributions, are not processed promptly due to lack of liquidity
in the investments. The Trustee manages this risk by only using pooled funds with daily
dealing within the default strategy and diversifying the strategy across different types of
investment.
5. Risk from excessive charges
Within the Plan, if the investment management charges together with other charges
levied on, for example, transfers or early retirement are excessive, then the value of a
member’s account will be reduced unnecessarily. The Trustee is comfortable that the
charges applicable to the Plan are in line with market practice and assesses regularly
whether these represent good value for members.
Appendix 2
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Appendix 2 (cont)
6. Credit risk
This is the risk that one party to a financial instrument will cause a financial loss for the
other party by failing to discharge an obligation. The Plan is subject to credit risk
because it invests in bonds via pooled funds. The Trustee manages its exposure to
credit risk by only investing in pooled funds that have a diversified exposure to different
credit issuers.
7. Currency risk
The Plan is subject to currency risk because some of the Plan’s investments are held in
overseas markets.
For the Plan’s lifestyle investment strategies, the Trustee believes that the currency
exposure is managed in an appropriate manner given the objective of each of those
strategies.
Within the Plan’s self-select fund range some funds will be subject to currency risk where
the underlying investments are held in overseas markets which the Trustee considers
reasonable.
8. Environmental, social and governance (ESG) risks
Environmental, social and corporate governance (ESG) factors are sources of risk to the
Plan’s investments, some of which could be financially material, over both the short and
longer term. These potentially include risks relating to factors such as climate change,
unsustainable business practices, and unsound corporate governance. The Trustee
seeks investment options that address these risks and to appoint investment managers
who will manage these risks appropriately on their behalf where permissible within
applicable guidelines and restrictions.
9. Other non-investment risks
The Trustee recognises that there are other, non-investment, risks faced by the Plan,
and takes these into consideration as far as practical in setting the Plan’s investment
arrangement.